In a Jan. 27 speech at the Securities Regulation Institute, Securities and Exchange Commission Chair Mary Jo Foley...
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said that 2014 will be "an incredibly active year in enforcement," and that the agency's regulatory approach will continue to evolve.
Just a few months into 2014, the Securities and Exchange Commission (SEC) has already proved Foley's statements true. In January and February alone, the commission brought charges against several major corporations, money managers, investment bankers and advisors. For example, Credit Suisse Group agreed to pay $196 million and admit wrongdoing to settle SEC charges. Scottrade representatives admitted the company violated recordkeeping rules under securities laws, while Alcoa Inc. was charged with violating the Foreign Corrupt Practices Act. Diamond Foods Inc. was charged with an accounting scheme to boost earnings growth, KPMG LLP was charged with violating auditor independence rules and a Legg Mason Inc. affiliate has been charged with defrauding clients.
This FAQ is part of SearchCompliance's IT Compliance FAQ series.
What is expected for SEC enforcement in 2014?
In March, the SEC announced the largest-ever monetary sanction under "Rule 105" short-selling violations. The sanction was imposed on a Long Island, N.Y.-based proprietary trading firm and the owner agreed to pay $7.2 million in the settlement.
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"Rule 105 is an important safeguard designed to protect the market against manipulative trading and we will continue to aggressively pursue violators," said Andrew M. Calamari, director of the SEC's New York Regional Office, in a statement announcing the settlement.
The SEC will also continue major investigations into the U.S. financial crisis and devote more attention to financial reporting misconduct. Auditors will continue to be a point of focus of SEC enforcement, but the agency will be taking a closer look at instances where senior executive misconduct could warrant SEC charges.
Will the SEC continue to require companies to admit wrongdoing when settling charges?
In 2013, the SEC modified its longstanding approach to settling charges without requiring companies to admit wrongdoing. The SEC outlined some general parameters for the circumstances under which an admission of wrongdoing would be required; including cases involving egregious conduct, a large number of harmed investors, significant risk to investors or markets and illegal obstruction of SEC processes.
The SEC is expected to handle more cases involving admission of guilt in 2014. In January, Scottrade Inc. representatives admitted that the company violated federal securities law recordkeeping rules after being charged with failing to provide complete trading data to the SEC. The St. Louis-based company also agreed to pay $2.5 million to settle the SEC charges.
In February, Credit Suisse Group AG admitted wrongdoing to settle charges that it provided cross-border services to U.S. clients without registering in advance with the SEC. The Swiss company agreed to pay $196 million as part of the settlement.
What technologies will be used for SEC enforcement initiatives and market oversight?
As the financial industry employs constantly-evolving, increasingly high-frequency trading technologies, the SEC is trying to develop data monitoring tools to keep up. The SEC is seeking better ways to collect, organize and analyze data -- particularly from new trading markets.
One of the newer technologies being deployed is the National Exam Analytics Tool (NEAT). NEAT enables examiners to rapidly analyze huge volumes of trading data to help identify potential insider trading. In the year ahead, the SEC is expected to put this tool to work to prevent front running, improper investment opportunities allocations and other noncompliant activities.
SEC examiners have also made it a priority to focus on several market-wide issues to ensure businesses are implementing proper controls in areas where there is potentially heightened risk. These issues include the use of proper technology controls, fraud-detection and prevention measures, corporate governance, enterprise risk management, retirement investments and challenges related to the convergence of broker-dealer and investment-advisor businesses.
Another technology the agency plans to leverage in 2014 is the Market Information Data Analytics System (MIDAS). This tool collects a billion trading records daily across markets and sorts them instantaneously, saving weeks or even months of staff time. This year, the SEC is aggregating the MIDAS data and putting it online, making information, once available to relatively few people, a public resource.
In an effort to reduce the chance of another trading interruption similar to the one that took place in August 2013, the SEC will also be taking a closer look at how exchanges and traders are applying and monitoring their own data technologies.
On what types of rulemaking is the SEC expected to concentrate in 2014?
In January, Foley outlined several areas of rulemaking on which she expects the SEC to concentrate in 2014:
- Continued disclosure reform and, in particular, reviewing the type of information that is requested, where it is disclosed, how it is presented and how technology can be used to make the information more meaningful to investors.
- Open proceedings to consider adopting rules for systems compliance and integrity, known as Regulation SCI, to establish tougher requirements for how exchanges and other entities use technology.
- Finalize and implement a new regulatory framework for the over-the-counter derivatives market, including the infamous credit default swaps, to make the market more transparent.
- Finalize rules to further reform money market funds to make them more resilient to market fluctuations.
- Complete disclosure rules for asset-backed security and adopt retention rules for sponsors.
- Complete implementation of crowdfunding rules proposed as part of the JOBS Act.
Dig Deeper on Financial services compliance requirements
Caron Carlson asks:
Will SEC regulatory enforcement influence your industry's processes and data management strategies? Why or why not?
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